Creating a Low-Carbon Economy

Trade Wars over Chinese Solar, Keystone Rerouting would Eliminate 2012 Hotbutton, IEA Study urges Investment in Clean Tech

Clean Energy Update:

Potential Trade War over Solar Power Industry Brews at the Department of Commerce

The Obama Administration finds itself caught between abundant cheap solar manufactured in China and strong resistance from U.S Solar manufacturers.  Environmentalists are playing a key Middle Role.  In the past few years,  imports from Chinese solar manufacturers has morphed to one half of the US solar market leading seven American Solar Manufacturers to file a petition with the Department of Commerce asking for an Administrative investigation into the Chinese trade practices.  

Rerouting of XL Keystone Pipeline past Environmentally Sensitive Areas Could Take Hotbutton Issue off the 2012 Political Landscape

The Obama Administration finds itself caught in the middle between two important constituences on the XL Pipeline Issue.  Business and labor joined together in favor of the pipeline stressing the importance more jobs.  Meanwhile, the environmental communicy has mounted a full scale campaign against the pipeline stating the severe effects of the pipeline  on our ecosystem.   Thousands of protesters gathered around the White House this weekend to protest the building of this pipeline.  If the State Department does reroute the pipeline, this would require new environmental reviews, effectively delaying this issue past the 2012 election season, and taking this hotly charged issue off the political table.

International Energy Agency Urges Clean Technology 

A new study by International Energy Agency (IEA) states the Key to Climate Change is High Efficiency Technology.  The International Energy Agency issued a new study that says unless countries quickly shift toward high-efficiency technology and low-carbon energy sources, the infrastructure being built worldwide in the next five years will make it impossible to check climate change to safe levels.  




What's Next for Clean Energy

This past weekend, I attended the Aspen Institute's Clean Energy Roundtable, an annual gathering of business, political and policy leaders working in clean energy. Inspired by the many insights and ideas presented, here are my thoughts on the state of clean energy today and what lies ahead. 

First the good news.  Prices of key clean energy technologies are plummeting, bringing many technologies such as distributed solar and energy storage closer and closer to mass deployment.  The cost of solar panels today is about 20% below that of a year ago.  And it should continue dropping for the forseeable future. In other words, the performance/price ratio is improving exponentially, like computer chips if not quite as fast and for different reasons, cost economies for the most part as opposed to breakthrough technologies.  The main driver of the plummeting costs is volume and successful efforts by the Chinese government to vertically integrate the Chinese solar industry--that now supplies over half of the world's solar panels.  (In advanced thin films, costs per watt are also coming down.)  Even more dramatic price drops are occurring in battery storage across a range of chemistries with prices halving in the the last year.  Plummeting prices that translate to rising performance are good news for developers, electric car-makers and the global industry at large.

The story is more complicated, however, in the United States where we are in what might be described as the best and worst of times.  This past year saw torrid growth in solar deployment in the US with solar capacity doubling; Wind installations also grew and wind is now a very competitive source of power.  Solar--already competitive with subsidies and in some markets--will be very competitive in several years.  That is the good news.  The bad news is that solar generation still supplies only .2% of US electricity and, what's more, growth has been driven by the 1603 provision in the tax law that allows tax credits to be redeemed for cash.  This provision expires on December 31 this year. Since the financial crisis, tax credits deals to build everything from affordable housing to energy have exceeded the pool of capital from investors seeking to shelter profits.  That means tax credits absent the 1603 provision can be worthless.  With extension of Section 1603 uncertain , the solar industry may face significant challenges beginning this winter.

Similarly, on the wind side, the end of the 1603 credit would take a toll and the production tax credit for wind, itself, expires at the end of next year. While companies are scrambling to start projects before these deadlines pass, afterwards activity may fall of the proverbial cliff.  In short, while global fundamentals for clean energy remain strong, the sector remains quite sensitive to government subsidy.  In the US with subsidy likely to to change and-especially with gas prices likely to stay low as more shale gas comes onstream, we may see more clean energy activity shift overseas.  (One potential fix to this problem: moving clean energy off "subsidies" and giving them equal access to the master limited partnership tax break that extractive industries like oil and gas enjoy.)  Cheap American shale gas could nicely complement intermittent, renewable energy, but effortst to bring the technologies together have lagged.

Indeed, despite intense focus by Silicon Valley and the support of the US government, the US is not catching up with Europe or China on clean energy and in many measures, we are falling further behind.  A few years ago, Germany adopted an export promotion plan that included factories as exports.  It exported gas turbine and solar panel factories to China which is how China has so rapidly come to dominate many areas of clean manufacturing.  The Germans have done well selling machine tools to the Chinese while creating demand (and green power) at home through an aggressive feed in tariff  The US, however, except for a few bright spots like Applied Materials that makes equipment to manufacture panels, First Solar, a thin film manufacturer, here and there innovators like Sun Edison and Tesla--and a few large companies such as GE and IBM, has yet to find its way.

Why?  Unlike Germany that has deep credentials in improving manufacturing incrementally, we have excelled through innovating and creating new industries. For example, France Telecom deployed the minitel years  before America  went online but US companies ultimately came to dominate online technology once we created the open Internet platform that allowed yankee entreprenurship to flourish.  Yet despite developing scores of breakthrough energy technologies in our national labs and robust funding of clean energy companies, as I have written before, clean tech innovators have run up against the brick wall of a regulatory system that funnels purchasing decisions to regulated utilities.  The latter are dis-incented by law to invest in new technologies.  Meanwhile, in many states, the consumer remains locked out of the action entirely behind the Iron Curtain of the electricity meter. The sector is still attracting capital but time is running out to upgrade the regulatory structure to what I have described as Electricity 2.0 to create large, gatekeeper-free platforms that reward innovation and investment.

If there is one strong positive on the clean energy front, it is that the consumer has been given a small seat at the table, notably through the introduction this year of the first two electric cars, the Chevy Volt and Nissan Leaf, and in the form of the proliferation of direct generation of electricity, primarily from solar.  The electric car is a technology that can engage the consumer on the ultimate playing field of new, more,  better.  However, if the the cars fail to thrill, clean tech will experience a potentially huge setback.  For that reason making electric cars and charging infrastructure work has to be a key priority for the industry.

More broadly, the once almighty American Consumer who has not only driven domestic growth in recent decades by controlling a huge chunk of GDP but also funded the development of the Pacific rim, has been the missing force in the clean energy sector.  Consumers are prohibited from directly buying clean energy by law in many states in contrast to communications or the Internet where consumer demand drives rapid product life cycles and profits at a speed in synch with venture capital.

Indeed, the write once, make money everywhere, model of the Internet is providing stiff competition for capital to clean tech where local regulations and the gate-keeping role of utilities can sap the energies of even the best funded, most visionary entrepreneurs.

Nonetheless, my final takeaway was that while challenges abound, clean energy remains one of the largest, most important and potentially, most transformative projects of the 21st Century.   Our job is to engage the consumer, sweep away barriers and play to America's strengths in innovation, entrepreneurship and out-of-the box thinking  in the face of obstacles.

Tapping the Strategic Petroleum Reserve

Yesterday, the United States announced it will release 30 million barrels of oil from the Strategic Petroleum Reserve as part of a coordinated effort by the International Energy Agency to place an additional 60 million barrels on the market to reduce oil prices.

The move comes at a crticial point in the global economic recovery: While oil prices have been trending downward, uncertainty over energy combined with problems in the Eurozone and the US housing market are threatening the global recovery.  The Federal Reserve acknowleded as much earlier this week when it lowered its growth forecasts.  The optimism of the fourth quarter of last year has given rise to pessimism as the recovery enters an unprecedented second soft patch and some have even raised fears of a double dip recession. 

In this context, the release of oil--though it equals only about 15 days consumption by the US--is timely.  It made sense to jump proactively on a downward drift already underway.  The announcement has already succeeded in taking a bite out of oil prices which dropped 7% yesterday. 

When intervening in markets there are normally several steps that governments employ.  First they talk.  A statement from the Secretary of the Treasury that the US favors a strong dollar for example, is usually sufficient to quiet fluctuations in the dollar.  The IEA did the equivalent of this when it said in May it would release oil if OPEC failed to raise production.  If mild talk doesn't workthe next step is to speak more forcefully.  Because financial markets can be unforgiving once they smell weakness, this may not work and can even have the opposite effect.  The next step for those with the resources is actual intervention in markets.  When intervening, the element of surprise is useful as it catches speculators off guard--ideally stemming their appetite for risk.  Yesterday's intervention seems to have been a success insofar as it has brought prices down but they are still above $100 per barrel. 

While I do not quarrel with yesterday's action, I think the Administration and the oil consuming nations need to go far beyond countering OPEC--or in this case making up for its failure to raise production to offset Libyan disruptions.  They need to end the oil cartel.

The IEA, created in 1974 in the wake of the first oil shock within the OECD framework to counter OPEC, has done a good job in its history of fostering cooperation on energy matters among consuming nations.  It requires its members to maintain large stockpiles of oil as a counterweight to OPEC.  However, just as the IEA has evolved, so too, has the world geopolitical situation.  The Western powers are now involved militarily in the Middle East--the geographic heart of the OPEC cartel--to a larger degree than at any time since colonial mandates wound down after World War II.  The convulsions in the region that have placed the West in the role of supporting some OPEC governments such as Saudi Arabia and Iraq while championing rebellion in others such as Libya gives us more leverage than we have employed to date to break up OPEC.

Specifically, as I argued earlier this month, the US and NATO should make as a condition of military aid that receiving governments agree to a timetable to withdraw from OPEC.

Second, the US has other tools.  The Justice Department has broken up hundreds of international cartels over the last two decades.  All it needs to take on OPEC is clarification of the Foreign Sovereign Immunity Act act, legislation both houses of Congress have at one time passed.

Third, eight OPEC countries are also WTO members or observers and the WTO forbids cartels.  As argued compellingly by Senator Frank Lautenberg, the oil consuming nations, led by the US should file trade actions in the WTO against OPEC.

Over a century of economic thought and case examples have shown that cartels are bad.  When the cartel deals with something as vital as oil, it is not only bad but dangerous.  OPEC--an organization that has done nothing good for the world and much ill--is vulnerable right now.  The global economy may be even more vulnerable.  The US and, indeed, all the oil consuming nations, should use every tool at their disposal to end the OPEC oligopoly.

The White House Framework for Grid Modernization

Yesterday, the White House released its keenly anticipated policy blueprint "A Policy Framework for the 21st Century Grid: Enabling Our Secure Energy Future", at an event at the White House.  As one of those whose input the report's authors solicited and someone who has argued that modernizing our electricity architecture is vital to the entire clean energy project, I am pleased that the document is now public.

Perhaps the greatest value of the Administration's Framework for the future of the grid is that it addresses the many topics related to the grid and commits the Administration to a path forward on all of them, a path based on considerable stakeholder input.  As NEC senior advisor Phil Weiser put it at yesterday's event, the framework is certainly not the beginning of the end of modernizing our electricity architecture, in Churchill's phrase, but it may be the end of the beginning.

The Framework sets forth a number of important priorities and pathways, all of them topics that our Electricity 2.0 project has addressed as well.  These include "Unlocking Innovation in the Electricity Sector" through open standards, demand management and perhaps most critically, preventing anti-competitive behavior.  In the words of the framework: "Ensuring options for consumers can catalyze innovation and help to empower them."

The report also has an entire chapter on a key priority of Electricity 2.0, "Empowering Consumers and Enabling Informed Decisionmaking".  As I have long argued, there is a strong pent up desire on the part of the American people to play a role in transitioning to clean energy but they have lacked the tools to do so.   The framework very explicitly endorses the idea of empowering consumers with information and the opportunity to exercise choice.

The framework also properly focuses on security.  Modernizing our electricity architecture means creating more reslience in the network, redundancy and safeguards against catastrophic failure.  Information technology and an upgrading of the architecture to manage variable generation--linked to intelligent demand will be key to achieiving the clean energy promise.

At yesterday's event, Energy Secretary Chu talked about the incredible innovation that has occurred at the edge of the grid-- as in LED lighting, electronics and solar panels--in sharp contrast to a system of transmission and distribution that Edison, Tesla and Westinghouse would recognize.  Going forward, it will be critical to open up portions of the network that those pioneers launched to a richer ecosystem of modern day innovators to bring the electricity backbone into the 21st Century. 

Also at the event, John Holdren, the President's Science Advisor and Aneesh Chopra, the CTO of the government, spoke about the critical role that grid modernization must play in moving America toward a clean energy fuure.

All in all, it was an excellent day of discussion around a very important policy document.

We are very fortunate that later this week on Thursday at 12:30PM at NDN, Nick Sinai of the Office of Science and Technology Policy, one of those who worked closely on the Framework, will be participating in our Clean Energy Solutions event at NDN where he will talk about the Framework

Our event will also feature a number of other distinguished speakers and include a presentation by Verizon debuting an exciting new service in this space. 

Don't miss this important and very timely event.   RSVP here.

Climate Skepticism and Clean Technology

When the UN awarded the Nobel prize to the scientists who make up the IPCC and Al Gore in 2008 for their work in documenting climate change from greenhouse gases, in the eyes of most of the world, the science on this issue was solved.  In recent months, however, a number of events have given heart to climate skeptics who never went away.  First hacked emails of scientists at the Climate Research Unit in East Anglia England contained statements that caused the institute's director, Phil Jones to resign.  Then the IPPC's chairman, Rajendra K. Pachauri became embroiled in conflict of interest questions.  The weather itself turned cold at least in influential places like Washington, DC which received a huge snowfall last week.  And Phil Jones recently told the BBC there is no statistically significant different in warming trends now and in the 19th Century.  The cascade of events brought the issue to the editorial page of the New York Times which this week published an editorial on the controversy, saying the stakes are so high that scientists need to act in a way that is beyond reproach.  The new datapoints are not enough to change the views of experts, but they have given the skeptics ammunition with which to launch a full scale offensive in the conservatie media and led, Donald Trump, for example, to call for Al Gore's Nobel prize to be revoked.

While I am not a climate scientist, to my mind abornormally cold weather could be as much an argument for climate change as abnormally hot weather and what happens in Washington DC is not representative of the planet as whole.  But I believe these questions are best left to scientists.  The question I want to address is whether cold weather this year has any bearing on the need to build a cleaner more efficient economy.  In my view, the answer is no.  The business and policy case for clean technology is compelling whatever may be happening to global temperatures year to year. 

Clean technology is not just about greenhouse gases.  It is about reducing conventional pollutants--particulate matter, mercury in fish from burning coal and other byproducts of burning fossil fuels.  It is also about promoting peace through renewable power since resource economies are notoriously unstable and undemocratic. (Oil is a virtual magnet for violence and the fact that the oil states tend to be anti-democratic is a special case of this general rule.)  And it is about bringing the energy sector into the 21st Century.  Something often forgotten in talking about clean technology is the fact that the energy industry--in particular the electricity industry is unique in the modern global economy in having been starved for decades for money for research and development.  The R&D deficit in the electricity industry--the industry at the center of the wider energy network--is severe and it has been severe for decades.  This is the deficit that more than climate change or anything else has created the clean technology opportunity. 

It is sometimes said that Thomas Edison would recognize today's electricity system it has changed so little in the past century.  And one of the main reasons clean tech garnered  $5.4 billion in investment last year according to the Cleantech Group, much of it in energy, is that the sector has been neglected for so many years.  Switches remain mechanical and wires are often undersized.  But the next question is why does the electricity industry spend less than 1% on R&D each year compared with 10% or more in technology industries?  The answer is that its highly regulated structure provides no reward for risk and, indeed, creates a bias in favor of legacy technology.  The decades old innovation deficit in electricity is what makes the category such a deserving one for investment today.  But the cause of that deficit is the chief obstacle to modernizing the industry.

For the investments in clean electricity to achieve their full potential, the underlying reward risk profile of the industry needs to change.  The electricity industry requires an upgrade to Electricity 2.0, a new modernized, open architecture to allow more players to participate in electricity markets, democratize global energy and unleash a renewable revolution.  Those changes and upgrading our electricity system to Electricity 2.0 need to happen no matter what occurs with global temperatures.

In short, while climate change remains a presssing and perhaps existential concern it is only one of many reasons to create a new clean energy future.  Clean technology will be central to America and the world's economic future, regardless of what happens to temperatures in a given month or year.

Obama on Clean Technology

Last night's compelling and in many ways inspiring State of the Union speech by President Obama should come as good news to the clean technology community and anyone who cares about the climate, energy independence and American economic leadership.  The President not only higlighted clean energy throughout his speech, but also signaled his continuing view, shared by many, that it must be at the heart of America's economic revival.

While clean energy has advanced since last year's clean-weighted stimulus bill, the critical stage of moving clean technology from a promising funding category in Silicon Valey to a major engine of economic revival remains ahead.  Here is how to accelerate that process.

First, as the president indicated, innovation is key.  But innovation is not just about advanced research and grants to large companies--the focus of last year's stimulus. To really get the job machine revving, we need to move innovation into the marketplace.  And we need small companies to turn into large ones.  That is where job creation really occurs--in the transformation of a startup consiting of a two enrepreneurs into a massive global company employing tens of thousands.  (Think Apple, Yahoo or Google.) As I have long been arguing, the major obstacle here is a complex and highly regulated energy landscape that presents a roadblock to the purchase and uptake of clean technologies.  It is time to change that landscape. 

Second, we need to direct R&D funding toward smaller businesses.  Since the 1980s, American industry has had a problem that while we may invent great technologies in our universities, other countries reap the commercial benefits because of a lower cost structure and also because they have efficient networks of small companies backed by large ones or other sources of funding able to exploit cutting edge American technology.  We are seeing in batterty technology today precisely what we saw in semiconductors and LCDs in the 1980s.

During the 1990s, Silicon Valley helped address this problem by funding the stage between reserach and commercial exploitation in California, specifically around Stanford University.  A disproportionate share of entrepreneurs came from Stanford and the surrounding community.  But there is great science going on around the country that needs development funding to begin producing American jobs.

The answer to this problem are programs such as the Advanced Technology Program introduced in the 1990s to help startups survive the Valley of Death, more small business innnovation and research (SBIR) grants and other funding opportunities available on a peer reviewed bases to startups.  Virtually all of the smart grid money in the first stimulus went to large utilities.  However one 50 million grant to a utility could fund 500 grants of 100,000 to startups.  The latter is, by far, the better bet for our nation's money.

Third, it's not just about money.  In many cases, the key to innovation is getting government out of the way.  This was essential during the Internet era.  Many policy efforts currently are focused on getting the government more involved in the energy space, when in fact, the more cure--since government is already heavily involved in protecting incumbents is to remove those protections so as to give new technologies and new players a shot. 

Finally and most importantly, the public must be engaged.  Only people can make a revolution.  Until consumers are part of the action, clean technology will move forward awkwardly.  During the Internet era, consumers downloading new software, building websits, rigging up home networks, starting online stores and staying up to write code were critical to the revolution.  To move clean tech into high gear, we need to empower the American people to generate power, use new technologies and fight climate change.  At NDN, we have been working a great deal on how to empower people to lead the clean technology revolution and I will be debuting a paper on the subject shortly.

The president has set the correct overall direction.  It's up to his policy experts, those in Congress and stakeholders to craft a set of policies.  But it will be up to the American people to create the clean technology revolution.

A Funny Thing Happened on the Way to a Climate Agreement: Rounding-Up Copenhagen

In addition to Michael Moynihan’s must read analysis of the UNFCC COP-15 in Copenhagen, here’s a round-up of some analysis of the climate summit:

Climate Conference Ends in Discord by Fiona Harvey, Ed Crooks and Andrew Ward, FT

The Copenhagen climate conference ended on Saturday without unanimous agreement as the world’s biggest economies backed a limited accord that leaders said would form the basis for a future deal to tackle global warming.

Ban Ki-moon, UN secretary-general, acknowledged that the outcome was “not everything we hoped for” but described it as an “essential beginning” as he brought a close to two weeks of fractious negotiations in the Danish capital.

Talks had continued through Friday night into Saturday morning in a bid to reach consensus on a tentative agreement struck between the US, China and other big emerging economies on cuts in greenhouse gas emissions and financing to help developing countries cope with climate change.

But several developing countries, led by Venezuela and Bolivia, refused to endorse the deal, ensuring that the conference would end without an official agreement. Instead, all 193 countries agreed to “take note of the Copenhagen Accord” without committing to accept it.

What Hath Copenhagen Wrought? A Preliminary Assessment of the Copenhagen Accord by Robert Stavins, Harvard University 

It is unquestionably the case that the Accord represents the best agreement that could be achieved in Copenhagen, given the political forces at play.  Indeed, were it not for the spirited – and as I suggested above, quite remarkable – direct intervention by President Obama, together with the other key national leaders, there would have been no real outcome from the Copenhagen negotiations.  

Examining the Copenhagen Accord by Michael A Levi, Council on Foreign Relations

The Copenhagen Accord, agreed to on Saturday, is neither earth-shattering nor a failure. It avoids an international political mess that appeared likely as late as Friday afternoon. It falls short of expectations mainly because expectations had been ratcheted up far beyond what was realistic. It is a meaningful step forward, but its ultimate value remains to be determined.

Attention should now turn to elaborating the transparency measures contained in the text, and to implementing ambitious and intelligent domestic emissions-cutting efforts in the major emitting countries. It would be unwise to place significant hopes on converting the deal into a legally-binding pact soon.

The most interesting point to me, though, is what the process in Copenhagen means for Europe. Europe, unquestionably the leading region of the world in addressing climate change, was rendered virtually diplomatically irrelevant by the United States and a group of emerging economies:

An Air of Frustration for Europe at Climate Talks by James Kanter, The New York Times

Mr. Reinfeldt said President Barack Obama had been “very constructive” at the talks, creating a basis for the accord by smoothing over the dispute with China over an international monitoring system for emissions.

Still, the Swedish leader hinted that the Europeans had been caught badly off guard.

Mr. Reinfeldt said he had gotten his first signals that a deal had been struck while still engrossed in meetings.

“We had very tough negotiations two and a half hours after I read on my mobile telephone that we were already done,” he said.


Two Thoughts for President Obama on his Way to Copenhagen

With the President getting ready to go to Copenhagen, the EPA did what Congress wouldn’t: It put in place a policy that ultimately would sharply reduce carbon emissions.  The EPA finding that greenhouse gases (GHG) pose a health threat and thus trigger a process to reduce the risks through direct regulation has become the president’s “deliverable” in Copenhagen.  More important, the only forces that will ever prod Congress to take action on climate are broad public opinion and pressures from powerful groups – and that’s the real importance of the EPA finding and a series of additional rule-makings scheduled over the next year.  The finding and prospective rule-makings should bolster the public’s existing opinion that serious measures to reduce greenhouse gas emissions action are required, and put the fear of God in many business executives (or more precisely, the fear of unaccountable government regulators).  And the threat that the EPA may directly regulate the greenhouse gas emissions of every company in America is a credible one, given the Supreme Court’s recent holding that the law requires that EPA come to some finding about the dangers of those emissions.  The only course left for all the powerful groups that work so hard to stop or profoundly weaken climate legislation –their most recent handiwork is evident in the effective gutting of Waxman-Markey – is to enact a serious program that would preempt EPA.  Are you listening, big coal?  And climate activists should be on the same mission, once they consider what EPA regulation could look like under the next conservative Republican president.

CopenhagenThe finding also could accelerate the search for new approaches to climate change, broadening the debate beyond the cap-and-trade model which Congress has already rejected three times and, if Kerry-Boxer ever comes to a vote, will almost certainly defeat again.  The leading alternative, of course, is a carbon-based tax with the revenues going to cut payroll or other taxes.  It’s an approach that’s worked well in Sweden and now is being considered in France, Ireland and Denmark.  Economists like it, because it doesn’t introduce additional volatility to energy prices as cap-and-trade does; and environmentalists like it, because a stable price for carbon is a prerequisite for businesses to invest large sums in developing and adopting alternative fuels and technologies.  Now, if businesses can come to dislike the prospect of direct EPA regulation with enough fervor, a new consensus could emerge around a new way to address climate change.

Speaking of Copenhagen, let’s also cut through the nonsense about the whole project foundering unless rich countries agree to pay for the climate efforts of poor countries.  Climate change is almost entirely the business of the world’s developed and large, fast-developing countries, because poor countries simply don’t have enough electricity generation, factories, capital-intensive farming, and automobiles to produce significant amounts of GHGs.  In fact, the world’s three economically-dominant places -- America, the European Union, and China -- account for 55.5 percent of all emissions.  Include twelve more nations -- Russia, India, Japan, Canada, South Korea, Iran, Mexico, South Africa, Saudi Arabia, Australia, Brazil, Indonesia, -- and you cover 85 percent of global emissions.  Among those twelve, the only, barely plausible cases for assistance are India and Indonesia, although both are on sharply-rising growth and development paths that could soon generate the incentives and resources required to become more climate-friendly on their own.  Ensuring that the world’s 120 or so other countries, most of them small and many of them poor, share some responsibility for addressing climate change is truly a secondary issue.

It’s also clear that at this time, virtually no country seems prepared to shoulder the cost of making even its own economy truly climate friendly, much less pick up the bills to make other countries less carbon-dependent.  The best course is probably a business form of technology sharing, in which governments support the formation of joint ventures between developers in the United States, the EU and the other dozen or so large GHG emitting nations –especially China and India – to develop, produce and sell climate-friendly fuels and technologies.  Then saving the planet could end up being good business for everybody.

Nissan Leaf Gets Electric Vehicle Cost Structure Right

The New York Times "Wheels" blog delivers some interesting news on the Nissan “Leaf” (not sure about that name), the company’s new electric vehicle that is being introduced in Los Angeles today. 

The Leaf, an all-electric five-door hatchback, will have a 100-mile range, Nissan said.

Mr. Ghosn said last month, in introducing the Leaf at the Tokyo Motor Show, that the vehicle would be priced “competitively” compared with other cars its size. This has been estimated at $25,000 to $33,000. But the price won’t include the lithium-ion battery packs; those will be available for lease separately. The spent battery packs will be recycled by Nissan and reused.

The Times writes those last two sentences (emphasis added) as if leasing the battery packs is some kind of "catch" in the pricing. It's not. Rather, the battery pack and the electricity to charge it are analogs to gasoline in conventional vehicles, which is never sold with the car.

For this reason, Nissan is on to something with the battery leasing. Like Better Place, which is building infrastructure for electric vehicles (and is teamed up with Renault-Nissan), Nissan knows that the key is not to build a car with a battery for the same price as a conventional gasoline car. Rather, the key is building a battery-less car for the same price as a conventional car. And once that happens, because electricity is far cheaper than gasoline, all one has to do to beat conventional cars is make the lease cost of a battery plus the electricity costs competitive with the cost of gasoline over the same period (which is already a reality in many countries). Incorporating the battery and its cost into the vehicle is likely not the right way to go for so many reasons, but on the financing side the cost of actually making a car go is always an addition to the purchase cost. 

Fully electric cars have some way to go – charging infrastructure needs to be built out and standardized, battery costs still have to come down, and capacity should go up – but getting the cost structure right is crucial in creating this piece of the low-carbon economy. Electric vehicles will ultimately offer tremendous benefits to consumers, from price stability to never having to go to the gas station, and to the electricity system, as the aggregate storage capacity in batteries will provide a demand response capability. And while I might prefer a name that connotes a bit more strength, the Leaf is a nice step forward.

Scoping Out Plan B for Climate Change

Beyond the public’s view, major players in the climate change debate are reassessing their options.  In fact, as the prospects of Congress approving a cap-and-trade system fade, discussion is shifting to “Plan B.”

One reason is that the version of cap-and-trade which just barely passed the House of Representatives a few months ago, the Waxman-Markey bill, made so many concessions to polluting interests that its support among environmentalists has eroded badly.   Here’s one indicator of just how weak the bill is:  When it passed the House, bond ratings for coal companies improved – a remarkable development given that coal-generated electricity is the single largest source of greenhouse gas (GHG) emissions.   In the Senate, progressives are said to be determined to oppose any legislation that ends up as weak as Waxman-Markey.   And the moderates and conservatives who make up a majority of the Senate remain wary of climate-change engineering in a cap-and-trade form, since it would both raise energy prices for average Americans and make those prices more volatile for business.   The upshot is that the prospects of corralling 60 votes for the Kerry-Boxer cap-and-trade bill in the Senate have faded to nearly zero.  

In truth, the support for a cap-and-trade system always has been limited largely to a handful of sources. There are two large environmental groups – the Natural Resources Defense Council (NRDC) and the Environmental Defense Fund (EDF) – wedded to the notion of dressing up a regulatory cap on emissions with market-based trading in the emissions permits, and the Wall Street institutions eager to get a piece of all that trading and the speculation and derivatives it would throw off.  In addition, a few large energy companies with major business lines in trading energy futures have been active supporters, as have some other companies confident they can exact the kinds of special exemptions for themselves that ultimately hobbled Waxman-Markey.   Even that limited base has been shrinking:  Wall Street support has become a big negative in the current political context, and there are reports that in the wake of Waxman-Markey, NRDC is now internally divided over the basic strategy.

With the fate of cap-and-trade in the Senate pretty much sealed – in effect, cap-and-trade’s third successive rejection by the Senate -- the debate behind the scenes is moving to the alternatives.   The two leading options are direct EPA regulation of GHG emissions or a revenue-neutral carbon tax.  The courts recently held that EPA already has the authority to regulate GHG emissions, and the eclipse of cap-and-trade will shine a new spotlight on this approach.  The alternative is one which a good share of the environmental community, most economists, and climate-change leaders like Al Gore have all supported:  Apply a tax to energy based on its carbon content, and recycle the revenues as cuts in payroll or other taxes.  Given how economically costly direct regulation can be – and the uncertainties about what such regulation would look like under the next conservative president, compared to our present liberal one -- its prospect could quickly expand support for a carbon tax program.  That approach also has the virtue of a successful record:  While Europe’s cap-and-trade system has yet to reduce European GHG emissions, Sweden’s 15-year experiment with carbon-based taxes cut the country’s emissions sharply even as its economy grew 50 percent larger. 

For its supporters, a carbon tax is simple, transparent, and produces a steady price for carbon which businesses can use to plan large investments in developing and adopting more climate-friendly fuels and technologies.  To its opponents, it’s just another tax.  That objection should be at least partly neutralized by recycling the revenues through other tax cuts – if the debate remains reasonable.  In the end, environmental and business leaders, and ultimately the White House, will have to defend a carbon-based tax against the forces of politics as usual, which in this time seem dominated by the power of entrenched interests and the partisan politics of just-say-no-to-everything.  If we can’t manage that, we may well lose the best chance in a generation to take serious action to defend he climate our children and grandchildren will inherit. 

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